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Taxing
Sugar Drinks:
A Tool for Obesity Prevention, Cost Savings
and Health Improvement
A Policy Options Brief
May 2011
A Policy Options Brief by the Public Health Law Center
December 2010
Taxing
Sugar Drinks:
A Tool for Obesity Prevention, Cost Savings
and Health Improvement
A Policy Options Brief
May 2011
Suggested citation: Mary Winston Marrow, Public Health Law Center, TAXING SUGAR DRINKS: A Tool
for Obesity Prevention, Cost Savings and Health Improvement (2011).
Public Health Law Center
875 Summit Avenue
St. Paul, Minnesota 55105-3076
851.290.7506 . Fax: 651.290.7515
www.publichealthlawcenter.org
May 2011
This publication was prepared by the Public Health Law Center at William Mitchell College of Law, St.
Paul, Minnesota, with financial support provided by Blue Cross and Blue Shield of Minnesota.
This issue brief is provided for educational purposes only and is not to be construed as legal advice or as a
substitute for obtaining legal advice from an attorney. Laws and rules cited are current as of the issue brief ’s
publication date. The Public Health Law Center provides legal information and education about public
health, but does not provide legal representation. Readers with questions about the application of the law to
specific facts are encouraged to consult legal counsel familiar with the laws of their jurisdictions.
Acknowledgements
The author thanks Helen Rubenstein for her initial work on this project. The author also thanks Roberta
Freidman with the Rudd Center for Food Policy and Obesity, Mary Story with the University of Minnesota
School of Public Health, and Jenna M. Carter with the Center for Prevention of Blue Cross and Blue Shield
of Minnesota for their critical review and feedback. The author also recognizes Doug Blanke, Natasha Frost
and Susan Weisman for their editing and production assistance.
Copyright © 2011 by the Public Health Law Center
Table of Contents
EXECUTIVE SUMMARY............................................................................................................................1
INTRODUCTION: The Obesity Epidemic................................................................................................2
The Epidemic............................................................................................................................................4
Obesity’s Disparate Impact.........................................................................................................................5
The Impact on Health................................................................................................................................5
The Impact on Society...............................................................................................................................5
Impact on the health care system...........................................................................................................6
Impact on employee productivity......................................................................................................... 7
Impact on national security...................................................................................................................7
THE ROLE OF SUGAR DRINKS..............................................................................................................7
POLICY CONSIDERATIONS...................................................................................................................8
Types of Pricing Policies............................................................................................................................9
Regulatory fees......................................................................................................................................9
Sales taxes..............................................................................................................................................9
Excise taxes..........................................................................................................................................10
Proportional pricing policies................................................................................................................11
Size of the Tax or Fee...............................................................................................................................12
Types of Beverages to Include in a Pricing Policy......................................................................................13
Use of Tax Revenue.................................................................................................................................14
OTHER IMPACTS OF PRICING POLICIES...........................................................................................14
Low-Income Consumers.........................................................................................................................14
SNAP Benefits........................................................................................................................................16
Artificially Sweetened Beverages..............................................................................................................17
RESPONSE OF THE BEVERAGE INDUSTRY.......................................................................................18
Industry Opposition to Sugar Drink Pricing Policies...............................................................................18
Beverage Industry Pricing Strategies.........................................................................................................19
THE WAY FORWARD..............................................................................................................................19
CONCLUSION.........................................................................................................................................20
Executive Summary
Sugar drinks are one of the largest contributors of excess empty calories in our nation’s diet. A
growing body of evidence suggests that reducing consumption of these drinks could be the single
most effective intervention in reducing the prevalence of obesity in the United States. New dietary
guidelines issued by the United States Department of Agriculture in 2011 specifically identify
reducing consumption of sugar drinks as a key to helping Americans control their calorie intake and
manage their weight.1
Over the past decade, initiatives to reduce consumption of sugar drinks have focused primarily on
schools and workplaces. These initiatives have failed to significantly reduce the consumption of
these drinks because the vast majority of these beverages are consumed outside the school and work
environments. Cognizant of the tremendous impact pricing policies have had in reducing use of
tobacco products, policy-makers and health advocates are turning their attention to taxes and other
pricing policies to reduce consumption of sugar drinks.
State taxation of sugar drinks is in a considerable state of flux. Most states currently impose small
taxes on sodas and other sugar drinks, with many states seeking to expand the taxation of these
beverages in 2010 and 2011. Efforts to expand these taxes have been met with stiff resistance and
push-back by the beverage and grocery industries. Some states are also considering ending the
existing taxes on these beverages Public support for taxing sugar drinks depends largely on how the
tax revenue will be used, and is strongest when the revenue generated from these initiatives is used
to fund obesity prevention or other public health initiatives.
This policy brief reviews the scientific evidence linking consumption of sugar drinks to obesity. It
then evaluates the use of pricing policies as a tool to reduce consumption of these beverages and
improve weight, while discussing potential drawbacks and likely industry opposition to these
policies. Finally, this analysis summarizes some of the most recent national and state initiatives and
considers future developments in the implementation of pricing policies to reduce the consumption
of sugar drinks and improve weight in the United States.
Public Health Law Center
1
Introduction: The Obesity Epidemic
Obesity rates in the United States have been steadily increasing for over three decades. Indeed,
since 1980, obesity rates for adults have doubled, while obesity rates for children ages 7 to 11
have quadrupled. Obesity rates for adolescents ages 12 to 19 have tripled since 1970.2 3 Often
referred to as an “obesity epidemic,” the increased prevalence of obesity in the past three decades has
affected health outcomes, quality of life, and health costs, and is becoming one of the most pressing
public health issues in the United States today. The obesity epidemic has far-reaching impacts,
from reducing the projected life expectancy and quality of life of today’s children, to lowering the
productivity of the national workforce, to threatening the strength of the United States military
and national security. By some estimates, obesity may cause even more preventable chronic disease
and death in the United States than either poverty or smoking.4 As a result, urgent calls to action
have been made by government
leaders, the medical and business
communities, health advocates,
Determining Weight Status
military and school officials, and
many others.
Weight status is determined through a calculation of an
Reversing the increasing prevalence
of obesity will require multifaceted and coordinated action
across disciplines. Until recently,
most initiatives to stem the steady
increase in obesity have focused
on changing individual behaviors,
without system-wide or policybased interventions.5 These efforts
have failed to reduce weight in
the United States. As a result,
there is a growing consensus that
reversing the trend requires policy
initiatives that go beyond changing
individual behaviors and instead
increase access to nutritious food,
decrease access to unhealthy food,
and develop built environments
promoting physical activity, so
that individuals are able to make
healthier choices.6 7
Consumption of sugar drinks is
closely linked to the increased
prevalence of unhealthy weights
and many other health problems
associated with unhealthy weight,
including cardiovascular disease,
the alarming recent increase in
diabetes, increased dental cavities,
and poor nutrition.8 9 Taxing sugar
drinks is a key strategy to reduce
consumption of these beverages
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individual’s body mass index (“BMI”). For adult women
and men, a determination of BMI is made by calculating
the ratio of weight to height using the following formula:
BMI =
weight in pounds
X 703
(height in inches) X (height in inches)
A BMI between 18.5 and 24.9 is a “normal” or “healthy”
weight. A BMI between 25.0 and 29.9 is considered to
be “overweight”. A BMI greater than or equal to 30
indicates obesity. A BMI status of either overweight
or obese is considered unhealthy.
Determining if a child, ages 7 to 11, or an adolescent,
ages 12 to 19, is overweight or obese is made by
comparing where the BMI of an individual child or
adolescent falls within the percentile range established
for children and adolescents of the same age. Children
and adolescents are determined to be at a healthy weight
if they fall between the 5th and 85th percentile of their
peers. The weight of overweight children and
adolescents is between the 85th to less than the 95th
percentile of the weight of their peers. The weight of
obese children and adolescents is equal to or greater
than the 95th percentile of the weight of their peers.
See: Healthy Weight - it’s not a diet, it’s a lifestyle, CTR. FOR
DISEASE CONTROL AND PREVENTION, http://www.cdc.gov/healthyweight/assessing/index.html for additional information on determining the weight status for children, adolescents and adults.
and raise revenue for related public health
initiatives to reduce obesity in the United
States. Taxing food or beverages to reduce
consumption is based on the fundamental
economic principle that the higher the price
of any non-essential item, the less of that item
consumers will buy.10
Taxation of sugar drinks is not new. States
have been taxing sodas and other snack foods
at a higher rate than other food products for
decades. In 2010, over thirty states had a
sales tax on soda at a higher rate than other
food items.11 12 These existing tax initiatives
have had no meaningful impact on the
consumption of sugar drinks and related
weight outcomes because the taxes are too low
to make a meaningful difference on consumer
behavior and the tax revenue generated
is for general use, rather than weightrelated public health initiatives. However,
other successful public health initiatives,
including the use of excise taxes to discourage
tobacco consumption, provide evidence
that taxing sugar drinks at a higher rate
could significantly reduce the consumption
of these beverages and have a measurable
impact on weight, especially for those at
the greatest risk.13 In addition, dedicated
revenue generated through taxation could
provide meaningful funding to increase access
to healthy foods and support other obesity
prevention initiatives.
“Sugar Drinks”
For purposes of this report, the term ”sugar drink” follows the guidelines provided by the
United States Department of Agriculture for “sugar sweetened beverages” and includes all
beverages that are sweetened with various forms of sugars that add calories. Sugar drinks
include, but are not limited to, carbonated sodas, sports and energy drinks, sweetened rice and
dairy beverages, lemonade and other fruit –ades, sweetened teas and coffees, and other
sweetened fruit drinks. They do not include liquids containing only naturally-occuring
sugars, such as natural fruit juices.
Source:
U.S. DEP’T. OF AGRICULTURE & U.S. DEP’T. OF HEALTH AND HUMAN SERVICES, DIETARY GUIDELINES FOR
AMERICANS 2010 95 (2010), http://www.cnpp.usda.gov/Publications/DietaryGuidelines/2010/PolicyDoc/PolicyDoc.pdf (last visited February 4, 2011).
Public Health Law Center
3
The Epidemic
The prevalence of obesity in the United States has soared in recent years. Since 1980, the number
of obese adults has doubled, while the number of obese adolescents ages 12 to 19 has tripled. The
number of obese children ages 6 to 11 has quadrupled since 1970.14 Those classified as obese have
increased from approximately 15 percent of the population in 1995 to over 25 percent in 2009.* 15
If current trends continue, an estimated 75 percent of all U.S. adults will be overweight or obese by
2015, just four years from now.16
Prevalence of Obesity, 1995-2009.17
To reverse the obesity epidemic, it is critical to understand its cause. While individual genetic
makeup plays a contributing role in each person’s weight, the nation’s genetic makeup has not
changed in three decades, and the alarming developments of the last thirty years cannot be
attributed to biology or genetics. Instead, the explosion of obesity is the result of a fundamental
imbalance between Americans’ caloric energy intake and caloric energy expenditure. Balancing
activity and energy consumption is integral to maintaining an individual’s weight.18 The recent
increase in obesity is due primarily to an increase in the calories consumed without a corresponding
increase in physical activity.19 Put simply, Americans are not active enough to burn the added
calories they are consuming. Shockingly, today’s Americans are consuming some 300 calories more
each day than they did just a generation ago. About half of all those added calories come from sugar
drinks, with the result that sugar drinks, alone, are responsible for at least one-fifth of the weight
gained in the past three decades.20
As discussed below, the impact of the steady increase in obese individuals in the United States has an
enormous impact on the health, economy, security and productivity of the United States.
The percentage of overweight individuals has remained fairly constant, with close to 35% of the population consistently
overweight between 1995 and 2009. See http://apps.nccd.cdc.gov/BRFSS/display.asp?TrendValue=2&state=UB&cat=OB&yr=0
&qkey=4409&grp=0&SUBMIT5=Go (last viewed Dec. 1, 2010).
*
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Racial Disparities in Obesity Quantified
Several studies point out the differences in obesity rates among racial groups. Between 2003
and 2006, African American women were 70 percent more likely to be obese than Non-Hispanic
Caucasian women; American Indians and Alaskan Natives were 1.6 times as likely to be obese
as Non-Hispanic Caucasians; and Native Hawaiian and Pacific Islanders were 3.7 times more
likely to be obese than the overall Asian American population.1 Additionally, 5 percent more
Latino adults are obese than Caucasian adults.2
Sources:
1. Obesity Data/Statistics, OFFICE OF MINORITY HEALTH, http://minorityhealth.hhs.gov/templates/browse.
aspx?lvl=3&lvlID=537 (last modified Jan. 28, 2011).
2. TRUST FOR AMERICA’S HEALTH, F AS IN FAT: HOW OBESITY THREATENS AMERICA’S FUTURE 77 (2010), http://
www.rwjf.org/files/research/20100629fasinfatmainreport.pdf (last visited Dec. 21, 2010).
Obesity’s Disparate Impact
While obesity is increasing in all segments of the U.S. population, some ethnic and racial groups
have higher levels of obesity than others.21 Adult obesity rates are also linked to household income
and educational background, with higher rates of obesity among the poor and those with less
education.22
Because obesity carries many health risks these disparities have important health consequences for
the groups involved. Not surprisingly, the higher rates of obesity in these populations are closely
linked to a much greater prevalence of chronic disease.23
The Impact on Health
Obesity increases the risk for over 20 major chronic diseases, leads to reduced quality of life and life
expectancy, and increases health costs associated with treating these chronic health conditions.24 25
Health outcomes associated with obesity include: increased cardiovascular disease; colon cancer,
prostate cancer, breast cancer, and numerous other cancers; type 2 diabetes; asthma; hypertension;
depression; sleep apnea; joint problems; and liver disease.26 27 28 29 Children are especially vulnerable
to the medical risks associated with an unhealthy weight.30 31 When looking at the high prevalence
of obese and overweight children, the Institute of Medicine has indicated that today’s children may
actually have a reduced quality of life and a lower life expectancy than their parents as a direct result
of their unhealthy weight.32
The Impact on Society
The increased prevalence of obesity in the United States has far reaching impacts across multiple
sectors of society. These impacts can be seen in the health care system through rising medical costs,
in the employment sector through the lower productivity of the workforce, and on the U.S. military
through compromised national security.
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Impact on the health care system
The impact of obesity on the health care system is shared by individuals, health insurance providers,
employers, and society as a whole. This impact is felt primarily through direct medical costs related
to unhealthy weights, including preventive, diagnostic, and treatment services. These medical costs
are almost entirely the result of costs generated from treating obesity-related chronic diseases, such as
diabetes.33 The costs of providing health care for obese individuals are evident from a study finding
that in 2006, annual medical spending for obese individuals was a stunning 42 percent greater
than for individuals at a healthy
weight, or approximately $1,429
per year more for the medical
costs of obese individuals than
Socioeconomic Disparities in Obesity
individuals with a healthy weight.34
Quantified
Calculating the costs associated
Thirty-five percent of adults earning less than $15,000
with treating weight-related
per year were classified as obese as compared to 24.5
medical conditions depends on
who measures the cost, what
percent of adults earning $50,000 or more per year. In
costs are measured, and how the
2007, nearly 45 percent of children living in poverty
costs are measured. Even so,
were overweight or obese, compared with 22.2 percent
all measurements of these costs
of children living in households four times above the
show a deeply troubling rise in
poverty level.
the past three decades. From
1987 through 2001, 12 percent
Source:
of the total growth in U.S. health
TRUST FOR AMERICA’S HEALTH, F AS IN FAT: HOW OBESITY
care spending was attributed
THREATENS AMERICA’S FUTURE 6, 79 (2010), http://www.rwjf.org/
files/research/20100629fasinfatmainreport.pdf (last visited Dec. 21,
to medical issues related to an
35
unhealthy weight. According to
2010).
the Centers for Disease Control,
in 1998 over 9 percent of total
U.S. medical expenditures were
related to weight issues.36 In 2008, medical costs related to unhealthy weights were estimated to be
10 percent of all annual medical spending in the United States.37
With the steady increase in unhealthy weight in the United States, medical costs will increase
significantly in coming decades unless the current trends are reversed.38 39 Of particular concern is
the fact that medical costs associated with weight increase as individuals become heavier. As a result,
projections show medical costs associated with weight status increasing even more rapidly than
the increased prevalence of obesity.40 In fact, if current trends continue, the total health-care costs
attributable to unhealthy weights could more than double every decade.41 Reducing the prevalence
of unhealthy weight is therefore critical to slowing the increase in medical spending in the United
States.
The medical costs associated with treating weight-related health problems impose a significant
economic burden on both public and private payers.42 Public medical programs, like Medicare and
Medicaid, pay approximately half of these costs.43 In 2006, costs associated with treating obesityrelated conditions accounted for 8.5 percent of Medicare spending, 11.8 percent of Medicaid
spending, and 12.9 percent of private payer spending.44 On a state level, the costs of treating
obesity related illnesses are estimated to range from $87 million in Wyoming to over $7 billion in
California.45
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Impact on employee productivity
The impact of obesity on employee productivity represents a significant burden on the economic
prosperity of the United States. These “indirect costs” of obesity include the value of income lost
from decreased productivity, restricted activity, absenteeism, and bed days, in addition to the value
of future income lost by premature death.46 47 The unhealthy weight of both employees and their
family members also contributes to higher health care costs for employers.48
Many employers are as concerned about childhood obesity as they are about adult obesity, in
recognition of the increased medical costs of treating employees’ obese children, as well as the
time and productivity lost when employees provide care to those children.49 More fundamentally,
employers are focusing increasingly on the link between childhood obesity and adult obesity because
today’s obese children are much more likely to become tomorrow’s obese workforce.50
Impact on national security
The U.S. military has also identified the impact of rising obesity rates on both military recruitment
and military readiness as a critical national security issue. The prevalence of obesity presents
significant challenges for military recruitment as fewer civilian military-age women and men meet
military enlistment standards.51 Currently, nearly a quarter of military applicants are rejected
for being overweight or obese.52 In addition, unhealthy weight is also “associated with decreased
military operational effectiveness . . . and both acute and chronic adverse health effects” of active
members of the U.S. Armed Forces.53
The Role of Sugar Drinks
Although sugar drinks are a primary source of America’s increased calorie consumption, they have
little or no nutritional value and contribute to numerous chronic health conditions associated with
unhealthy weights, including cardiovascular diseases, type 2 diabetes, and dental cavities, to name
three.54 55
In the United States, sugar drinks account for approximately one-half of the recent increased calorie
consumption, represent the largest source of added sugars, and are one of the single most significant
sources of energy contributing to excess calorie consumption. Per capita consumption of sugar
drinks has increased dramatically over the past few decades along with the increased prevalence in
unhealthy weights.56 57
There are several measures that
demonstrate the increase in the
consumption of sugar drinks. Since 1977,
both the serving size and number of daily
servings of sugar drinks consumed have
increased.58 Between 1977 and 1996, the
portion size of a sugar drink increased
from 13.6 fluid ounces to 21.0 fluid
ounces.59 Similarly, in 1977 a typical
American was consuming 1.96 servings of
sugar drinks each day. Just nineteen years
later, this daily diet had increased to 2.39
servings,60 even as the size of each serving
was increasing.
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In the period from 1988 to 1994, Americans took in 158 calories every day from sugar drinks; only
ten years later, this had jumped to 203 calories per day.61 In 1997, beverages accounted for less than
15 percent of America’s calories. Only five years later, this had leapt to more than 20 percent, with
most of these calories from sugar drinks.62 63 The contribution of sugar drinks to total caloric intake
is particularly significant because a healthy diet does not require fluids to provide energy or nutrient
needs.64
Numerous peer-reviewed studies have identified a strong positive association between consumption
of sugar drinks and weight gain in children, adolescents and adults.65 66 67 68 69 70 71 Perhaps
not surprisingly, studies funded by the beverage industry have generally found weak links or
inconclusive evidence regarding a connection between consumption of sugar drinks and weight
gain.72 73 Nevertheless, the wealth of studies by independent researchers leaves little doubt that sugar
drinks play a central role in the obesity epidemic. In fact, the odds of becoming obese increase
significantly for each additional daily serving of a sugar drink. Adding a single serving of sugar
drink to a child’s daily diet increases that child’s likelihood of becoming obese by anywhere from one
to six times.74
Experts hypothesize that consumption of sugar drinks contributes to weight gain because liquid
calories are not as filling as calories from solid food. Those consuming excess liquid calories do
not appear to offset these liquid calories by reducing the number of calories they consume from
other sources. As a result, they consume more total calories than those who do not consume liquid
calories.75 76 77
Just as increased consumption of sugar drinks has been linked to increasing body weight, reducing
consumption of sugar drinks is linked to a reduction in body weight, with heavier individuals
experiencing a greater weight loss than those who weigh less.78 79 In fact, reducing sugar drink
consumption produces a greater weight loss than does a reduction in solid calories.80 In contrast,
reducing one’s consumption of other beverages, without added sugars, produces no comparable loss
of weight.81
Consumption of sugar drinks also causes health and medical issues unrelated to weight. A few
studies have found an independent and significant association between consumption of sugar
drinks and increased risk of type 2 diabetes, even after adjusting for weight.82 83 A higher risk of
cardiovascular disease has also been found in women who regularly consume sugar drinks.84 Other
health problems disproportionately impacting children and adolescents, such as an increased
incidence of dental cavities from the high sugar content and acidity of sugar drinks, have also been
associated with consumption of sugar drinks.85 For all these reasons, experts agree that public
health initiatives to reduce obesity, reduce the prevalence of type 2 diabetes, and improve the dental
health of children and adolescents should focus on discouraging and reducing the consumption of
sugar drinks while promoting the consumption of other beverages, such as water, low-fat milk, and
unsweetened coffee and tea.86 87 88
Policy Considerations
Arguably, the best way to reduce sugar drink consumption is to make these drinks more expensive.
Indeed, no less an authority than the Director of the Centers for Disease Control and Prevention,
Dr. Thomas Frieden, has argued that taxing sugar drinks at a rate of 1 cent per ounce could be the
“single most effective measure to reverse the obesity epidemic.”89
As a result, health advocates are increasingly looking to pricing initiatives as a tool to increase the
price of sugar drinks and generate revenue for public health initiatives.90 91 92 Proponents of this
approach generally focus on three over-arching goals for increasing the price of these beverages:
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reducing the consumption of sugar drinks, improving health outcomes caused by the consumption
of sugar drinks, and generating revenue to fund obesity prevention initiatives and pay for rising
health care costs associated with obesity.
The use of pricing policies, such as taxes or regulatory fees, to support public health initiatives
has been shown to be one of the most powerful tools for reducing the use of other unhealthy
products, such as tobacco and alcohol.93 94 As with these products, the use of pricing strategies to
reduce consumption of sugar drinks is based on the bedrock principle of economics that, with few
exceptions, the higher the price of any product, the less of that product consumers will purchase.95
The precise quantitative impact of different pricing policies on reducing the consumption of sugar
drinks and the impact of that reduction on weight and health outcomes continue to be the subject
of ongoing debate. Several studies have attempted to evaluate the impact of taxing sugar drinks on
weight outcomes. While it appears reasonable to believe that a significant price increase will result
in a significant reduction in consumption and a demonstrable weight reduction, it remains difficult
at this point to assess the research. The published results to date are affected by multiple variables
which are not evaluated consistently across different studies. As more communities use pricing
policies to reduce the consumption of sugar drinks, researchers will be able to provide measurable
results on the effectiveness of these initiatives.
The effectiveness of a pricing policy in reducing the consumption of sugar drinks and improving
related weight and health outcomes is closely related to four key policy considerations: 1) the type
of pricing policy; 2) the impact of the policy on the cost of the beverage; 3) what beverages are
targeted by the policy; and 4) the use of revenue from the policy.
Types of Pricing Policies
Generally, four types of pricing policies have been identified to reduce consumption of sugar drinks
and improve related weight and health issues: 1) regulatory fees; 2) sales taxes; 3) excise taxes; and
4) proportional pricing initiatives. When considering the use of different pricing policies on sugar
drinks, it is important to recognize that every state has a different political and legal landscape.
Therefore, each state or local government must go through its own multilevel analysis to determine
which policy option is best suited for the impacted community.
Regulatory fees
Depending on state-specific legal requirements for the imposition of regulatory fees, a state or local
government may impose a fee as part of its police power to protect the public health, safety and
welfare.96 97 Unlike taxes, regulatory fees are charged to the business that manufactures or distributes
a product or provides a specific service. The right to engage in a particular activity is contingent on
the payment of the fee.98 Revenue generated through a fee must be used for regulatory activities
related to the specific product or activity on which the fee is placed.99 Very broadly speaking, the
fee cannot be higher than necessary to carry out the activities for which the fee was created.100 For
example, the State of Minnesota imposes a fee on dry cleaning facilities which use specific dry
cleaning solvents in their operations.101 The revenue from this fee is deposited in a dry cleaner
environmental response and reimbursement account in the state’s remediation fund.102 Funds from
this account are used to cover environmental response costs incurred as a result of the operation of
dry cleaning facilities.103
Sales taxes
A sales tax is a tax assessed on the retail price of goods. Sales taxes are imposed on the consumer at
the “point of purchase” and are collected by the retailer.104
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The success of sales taxes in reducing purchases and consumption of sugar drinks may be limited.
Generally, for consumers to respond to an increased price caused by a taxing scheme, they must
be aware of the tax-induced price change at the time they decide to purchase the item involved. A
fundamental weakness in using a sales tax to impact consumer behavior is the fact that the aftertax price of items subject to sales taxes is not apparent to consumers until after they decide to make
a purchase.105 Sales taxes are not ordinarily included in the prices identified in advertisements,
package markings, price tags, signs or other price displays included with products. Sales taxes are
not added to the cost of an item until after the consumer has decided to make the purchase.106 In
the course of completing the purchase, the sales tax is applied automatically and invisibly, and
usually in a way that does not associate it clearly with any particular item. Therefore, customers are
generally not aware of the impact of a sales tax on the price of an individual item. In addition, even
when consumers are aware of the
additional cost of a sales tax, the
consumer may simply be motivated
to purchase a less expensive brand
California Experience
or a larger quantity priced to
Prior to the 2010 election, health advocates in California
allow the purchaser a “volume
had an interest in using regulatory fees on sugar drinks
discount.”107 108 Accordingly, use
to fund activities to reverse the obesity epidemic. This
of a sales tax on sugar drinks may
interest grew in part from a legal situation unique to
not have the same impact on
California that made imposing regulatory fees easier
consumer behavior as an excise
tax, discussed below. Despite its
than imposing a new tax in that state. Specifically,
more limited impact on changing
imposing a new regulatory fee only required a majority
consumer behavior, the fact that
vote of the state or local legislative body creating the
many states already impose sales
fee. In contrast, adoption of most new state or local
taxes on sugar drinks suggests a
taxes in California required a supermajority, or twogeneral acceptance of these taxes,
thirds, vote of the legislative body. In November 2010,
at least at a low rate. Earmarking
however, California voters approved an amendment to
the revenue from a sales tax for
the state constitution, now requiring a supermajority for
obesity prevention initiatives could
most regulatory fees, as well. Given this setback in the
increase the impact these taxes
use of regulatory fees in California, and the lack of any
have on the consumption of sugar
clear examples where regulatory fees on sugar drinks
drinks.
Excise taxes
Excise taxes are another taxing
mechanism that can be used to
increase the cost of sugar drinks
and generate revenue for public
health initiatives. Excise taxes
are generally placed on “the
production, sale, or consumption
of a commodity” and are usually
imposed on a specific type of
business for the privilege of
conducting that business.109 As
applied to sugar drinks, excise taxes
could be placed on either the entire
beverage sold or on the volume or
weight of a unit of sweetener, such
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have successfully been used to generate revenue for
obesity prevention initiatives, additional assessment
of the use of regulatory fees to fund obesity prevention
initiatives is needed, at least in California.
Sources:
Using Regulatory Fees to Combat the Adverse Effects of SugarSweetened Beverages, PUB. HEALTH LAW AND POLICY (2009), http://
www.phlpnet.org/sites/phlpnet.org/files/PHLP-SodaFeePolicyBrief_
FINAL_091218_0.pdf (last visited Dec. 21, 2010).
JILL E.C. YUNG, SANJAY M. RANCHOD & GORDON E. HART,
PASSAGE OF PROPOSITION 26 ALTERS FUTURE OF REGULATORY FEES
IN CALIFORNIA (2010), http://www.paulhastings.com/assets/publications/1780.pdf?wt.mc_ID=1780.pdf (last visited Feb. 18, 2011).
as per ounce or gram of added sugar or high-fructose corn syrup. The additional cost associated
with excise taxes would be placed on the producer, wholesaler or distributor of the beverages being
taxed.110 111
While the costs associated with excise taxes on sugar drinks are expected to be passed on to the
retailer and consumer, the extent
to which an excise tax impacts
the price of an item is largely
determined by the producer,
Minnesota Sales Tax and Sugar Drinks
wholesaler or distributor when
Minnesota has a long history of using tax policy as a tool
establishing the pricing structure
112
of specific products. Excise taxes
for differentiating between foods that are deemed more or
would most likely be passed on to
less desirable for health. As discussed below, Minnesota
retailers and incorporated into a
recognizes that soft drinks are less desirable than other
higher retail price, which would
more nutritious beverages and food items by taxing soft
be displayed with the product in
drinks at a higher rate than more nutritious items.
a retail environment or on the
Generally, food and food ingredients are exempt from
menu of an eating establishment,
the general sales tax in Minnesota.1 2 However, this
such as a fast-food restaurant.113
exemption from the sales tax has not applied to soft
Accordingly, excise taxes would
drinks since at least 2000. In 2000, “soft drinks”,
affect not only beverages purchased
including carbonated and noncarbonated beverages or
for home consumption, but
drinks sold in liquid form, but not including beverages
also those beverages sold as
containing milk or more than 15 percent fruit juice, were
fountain drinks at restaurants and
made subject to taxation under Minnesota’s general sales
convenience stores, in vending
tax. The legal definition of “soft drink” under Minnesota
machines, and at other locations,
law changed in 2001 to its current definition and is now
like school stores and worksite
cafeterias.
defined as nonalcoholic beverages in liquid form that
Proportional pricing policies
Proportional pricing initiatives
would require that the price of
sugar drinks be based on the
quantity of beverage sold, and
would prohibit today’s common
pricing arrangements under which
larger quantities of a sugar drink
can be purchased at a lower price
per ounce than a smaller size.114
That is to say, in place of today’s
commonplace arrangements
under which consumers are
invited to “super-size” a drink and
receive a much greater quantity
of beverage (and sugar) for a
nominal additional sum of money,
proportional pricing laws would
require that these beverages be
sold for the same price per ounce
or portion, no matter how large
contain natural or artificial sweeteners. Beverages that
contain milk or milk products; soy, rice, or similar milk
substitutes; or beverages with greater than 50 percent
vegetable or fruit juice by volume are not included in the
definition of “soft drinks” and have been exempted from
the general sales tax as a food item since 2001.3 In
Minnesota, local governments are prohibited from
imposing local sales taxes without legislative approval.
Accordingly, local governments in Minnesota do not
currently have the authority to impose local sales taxes on
sugar drinks.4
Sources:
1. MINN. STAT. §297A.62 (2010).
2. MINNESOTA SALES AND USE TAX INSTRUCTION
BOOKLET, MINN. DEP’T. OF REVENUE (2009),
http://taxes.state.mn.us/sales/Documents/instructions_st_bk_
rev0709.pdf (last visited Feb. 18, 2011).
2. MINN. STAT. §297A.61 (2000).
3. MINN. STAT. §297A.61 (2001).
4. MINN. STAT. §297A.99, Subd. 1 (2010).
Public Health Law Center
11
the drink. Under a proportional pricing requirement, therefore, doubling the size of a drink would
double its price. These proportional pricing initiatives focus on removing economic incentives
encouraging consumers to purchase larger sizes of sugar drinks.115
Proportional pricing initiatives could reverse recent trends in which consumers buy larger portions
of sugar drinks for a lower per ounce cost.116 Encouraging customers to “buy more for less” is a
common tactic in many convenience stores and fast food restaurants offering relatively cheaper
“super size” portions to customers. Convenience store chain 7-Eleven, for example, introduced
a 32-ounce “Big Gulp” drink in 1980.117 Eight years later, 7-Eleven began offering the 64-ounce
“Double Gulp” with continuing
claims that the “Double Gulp”
is one of the “biggest fountain
USDA Study on Taxing Caloric-Sweetened
soft drinks on the market.”118
The Double Gulp contains
Beverages
approximately 45 teaspoons of
sugar and 744 calories.119
The United States Department of Agriculture (“USDA”)
To date, proportional pricing
initiatives on sugar drinks are
untested and may face legal
challenges from the beverage
industry.120 Additional research
on the use of proportional pricing
strategies to reduce consumption
of sugar drinks is needed to better
understand the potential benefits
and risks associated with these
strategies.121
Size of the Tax or Fee
published a study in July 2010 analyzing the potential
impact taxation of sugar-sweetened beverages would
have on the prevalence of unhealthy weights in the
United States. This study estimates that, with all other
variables remaining constant, a tax-induced 20 percent
price increase on sugar-sweetened beverages could cause
a decline in the prevalence of overweight adults from
66.9 to 62.4 percent and a corresponding decline in the
prevalence of obese adults from 33.4 to 30.4 percent.
Likewise, this tax level could also reduce the prevalence
of children at risk for being overweight from 32.3 to 27.0
percent and the prevalence of overweight children from
16.6 to 13.7 percent. This study also found that the reduction in calories from a tax on sugar drinks would keep
certain at- risk individuals from becoming overweight or
obese.
The impact of a pricing policy on
changing the consumption of sugar
drinks involves how much the
price of a sugar drink is impacted
Source:
and the related “price-elasticity”
TRAVIS A. SMITH, BIING-HWAN LIN, JOQ-YING LEE, UNITED STATES
of the drink. “Price-elasticity”
DEPARTMENT OF AGRICULTURE, TAXING CALORIC SWEETENED
refers to “the responsiveness of the
BEVERAGES: POTENTIAL EFFECTS ON BEVERAGE CONSUMPTION,
quantity demanded of a good to
CALORIE INTAKE, AND OBESITY (2010), http://www.ers.usda.gov/
its price” and reflects the extent
Publications/ERR100/ERR100.pdf (last visited Feb. 18, 2011).
to which consumers will continue
to purchase a specific item as
its price increases.122 Because of
their limited financial resources,
children, adolescents and lower income populations are generally more sensitive to increased prices
than others.123 124 125 126 Some research specifically indicates that increasing the price of sugar drinks
through taxes would have a greater impact on the behavior of lower income groups than on higher
income groups.127 In addition, some research indicates that heavier individuals may be more pricesensitive, and that significant pricing interventions on sugar drinks could have a measurable effect
on reducing the consumption of sugar drinks and improving weight outcomes in this population.128
A number of studies have tried to evaluate the impact of increased price on the consumption of
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Public Health Law Center
sugar drinks and related weight outcomes. However, the results of these studies vary considerably.
These differences are a result of several factors, such as using different methodologies, studying
different tax structures, and looking at different populations. Some studies show that a “pennyper-ounce” excise tax could potentially reduce consumption of sugar drinks by up to 23 percent.129
Other studies have found that for every 10 percent increase in price, consumption of sugar drinks
would decrease between 8 and 10 percent.130 131 Still others indicate that imposition of a 35 percent
price increase would decrease soft drink consumption by over 25 percent.132
Despite the variations in study results, larger price increases than those currently in use will be
needed for pricing policies to have a significant impact on reducing the consumption of sugar
drinks and improving related weight outcomes.133 The average sales tax rate on sugar drinks among
states currently taxing these beverages is 5.2 percent.134 There is a growing consensus that, at a
minimum, a penny per ounce excise tax on sugar drinks, or a tax rate of approximately 10 percent,
is needed to see a meaningful reduction in consumption of sugar drinks as a result of taxation.135 A
tax rate at this level is expected to reduce the annual caloric consumption of an average individual
in the United States by 8,000 calories per year, translating into the elimination of approximately
2.3 pounds of excess weight.136 That said, smaller taxes can still contribute to obesity prevention
initiatives if the revenue generated from these taxes is dedicated to increasing access to healthy foods
or funding other obesity prevention initiatives.137 The failure of current sales taxes imposed on sugar
drinks to impact consumption of sugar drinks and related weight outcomes is generally attributed
to the fact that these taxes are too small to impact consumption and fail to earmark revenues for
obesity prevention initiatives.138
Types of Beverages to Include in a Pricing Policy
One of the most controversial policy decisions in these pricing policies is determining which
beverages to include in a tax or other pricing initiative. Generally, discussions on this point focus on
whether any caloric sweetener has been added to a particular beverage. Advocates and policy-makers
also typically consider the level of public support for taxing sugar drinks, including considerations of
calorie content and the percentage of fruit juice in the beverage, and anticipated industry response
to the inclusion of a specific beverage or group of beverages.
Most health advocates focus on whether or not any caloric sweetener has been added to a beverage
when considering if a specific beverage should be included in a pricing initiative. Others make a
distinction between beverages with little to no nutritional value and beverages with some nutritional
benefits, such as dairy products and fruit juices. For example, the decision whether or not to
include 100 percent fruit juice as a taxed beverage has been debated. Increased consumption of 100
percent fruit juice has been identified as a potential contributor to the increase in unhealthy weights,
with some arguing that 100 percent fruit juice should also be included in initiatives to decrease
consumption of other calorie-laden drinks.139 However, most advocates for taxing sugar drinks do
not support the taxation of 100 percent fruit juice but do support the taxation of drinks containing
some fruit juice and added sugars.140
Definitions of sugar drinks vary across the country. The Congressional Budget Office in 2008 and
the Senate Finance Committee in 2009 identified the possibility of imposing a federal excise tax
on sugar drinks to generate revenue to fund health care reform. The sugar drinks targeted in these
discussions included a variety of sugar-sweetened carbonated and un-carbonated beverages, such as
non-diet soft drinks, fruit and vegetable drinks, energy and sports drinks, iced teas and coffees, and
flavored milk and dairy drinks.141 142 These federal discussions also included the possibility of a tax
on sugar-sweetened fountain drink syrup at a higher rate per ounce to ensure that the tax per ounce
of a fountain drink would be equivalent to that of other taxed sugar drinks.143 144
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13
The State of Colorado recently removed the sales tax exemption for sales of candy and “soft drinks,”
making these items subject to the state’s sales tax as of May 1, 2010.145 “Soft drinks” are defined as
“nonalcoholic beverages that contain natural or artificial sweeteners” but not including beverages
that contain milk or milk products; soy, rice or similar milk substitutes; or greater than fifty percent
of vegetable or fruit juice by volume”146 This initiative is in a state of flux as a bill was pending in
the Colorado legislature in early 2011 to reinstate the sales tax exemption for sales of candy and
“soft drinks”.147 Still others try to balance industry concerns with public health concerns. This
is evident in New York’s recent, albeit unsuccessful, effort to pass legislation taxing sugar drinks.
In the State of New York, former Governor David A. Paterson proposed an excise tax on sugarsweetened beverages containing more than ten calories per eight ounces, including soda, sports
drinks, energy drinks, colas, fruit or vegetable drinks containing less than 70 percent natural fruit or
vegetable juice, and sweetened bottled tea and coffee.148 The decision to include lightly sweetened
beverages in this proposal was seen as a way to respond to industry concerns, while discouraging
consumption of high-calorie beverages and making lower-calorie beverages more affordable.149
Revenue generated from the proposed New York tax would have been dedicated to health care
spending through the Health Care Reform Act.150 The proposal was not adopted.
Determining what sugar drinks should be contained in a pricing strategy is a complex, highlypolitical decision. Communities pursuing pricing strategies need to weigh definitions carefully and
should look to other jurisdictions for examples of successes and failures of a particular definition.
Use of Tax Revenue
Taxes on sugar drinks will be more effective in reducing weight if the revenue generated is dedicated
to obesity prevention measures.151 Typically, the proponents of these taxes advocate for dedication
of the tax revenue to such prevention measures. Some groups, such as the American Heart
Association, have specifically stated that any support for taxing sugar drinks should be contingent
on dedicating all tax-generated revenue to obesity prevention and other public health initiatives.152
While most advocates would agree that dedicating revenue from sugar drink taxes to obesity
prevention initiatives is desirable, in light of current fiscal challenges, taxes on sugar drinks are also
being considered by lawmakers as a mechanism for general funding purposes. The precedence for
this so-called “earmarking” can be seen in tobacco control efforts, in which tax-generated revenue
has been used for tobacco control and prevention programs and other public health initiatives.153
Public support for taxing sugar drinks also increases if the revenue generated from sugar drink taxes
is used to support obesity prevention initiatives.154 155
Other Impacts of Pricing Policies
Those considering increasing the price of sugar drinks through taxes or fees should also consider the
impact these increased prices will have on low-income consumers, recipients of federal Supplemental
Nutrition Assistance Program (“SNAP”) benefits, and on the consumption of artificially sweetened
beverages.
Low-Income Consumers
A key concern raised about increasing the prices of sugar drinks through taxes or fees is the extent
to which this tax would be regressive with regard to its disproportionate impact on low-income
consumers.156 Concerns about regressivity stem from the fact that lower-income populations spend
a higher percentage of their budget on food and beverages than higher-income populations. As
a result, lower-income populations choosing to buy taxed sugar drinks will end up spending an
even greater percentage of their income on these beverages than before the beverages were taxed.
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Public Health Law Center
SNAP Benefits and the WIC Program
Efforts to prohibit the purchase of sugar drinks with SNAP benefits have been met with stiff
resistance from some community advocates, who argue that these types of initiatives serve to
police the poor and create additional hardships and stigma for those using federal benefits.1
While SNAP benefits may be used to purchase a wide assortment of foods or food products
intended for human consumption, hot foods and hot food products prepared for immediate
consumption are not eligible for purchase with SNAP benefits.2 In addition, the federal Women,
Infants, and Children program (“WIC”) has strict guidelines on what foods can be purchased.
The WIC program was developed to be a supplemental program to the food stamp program and
provide supplemental foods and nutrition education to pregnant, postpartum and breastfeeding
women, infants and young children from families with inadequate income. Foods currently
included in the WIC program include infant cereal, iron-fortified adult cereal, vitamin C-rich
fruit or vegetable juice, eggs, milk, cheese, peanut butter, dried and canned beans/peas, canned
fish, soy-based beverages, tofu, fruits and vegetables, baby foods, whole wheat bread, and other
whole-grain options.3 The WIC program does not include sugar drinks or other high energy,
low-nutritious foods such as processed snack foods and candy.4
The fact that sugar drinks and other foods with little nutritional value are excluded from the
WIC program while these foods are eligible under the SNAP program is striking, especially
considering that the SNAP program was specifically created to raise the nutrition levels of lowincome households.5 The current efforts by New York City and some states to ban the use of
SNAP benefits to purchase sugar drinks highlights some of the inconsistencies between these
federal nutrition programs and renews the question as to what items should be eligible for
purchase with SNAP benefits.
Sources:
1. Letter to Tom Vilsack, Sec’y of Agric., U.S. Dep’t. of Agric. from New York City Coal. Against Hunger (Oct.12,
2010), http://www.nyccah.org/files/Vilsack_SNAP_restrictions.pdf.
2. See 7 CFR §271.2 (2010) for definition of Eligible Foods.
3. THE SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND CHILDREN,
U.S. DEP’T OF AGRIC. (2009), http://www.fns.usda.gov/wic/WIC-Fact-Sheet.pdf (last visited Feb. 18, 2011).
4. 7 CFR §246.10 (2010).
5. 7 CFR §271.1 (2010).
However, as discussed below, there is some evidence indicating that lower-income consumers of
sugar drinks will not end up spending a disproportionately larger share of their income on these
beverages than higher-income consumers after a tax is imposed.
While it is important to recognize the potential that low-income consumers could be burdened
with the increased costs from a tax or fee on sugar drinks, it is also critical to recognize that lowincome people are disproportionately affected by the illnesses which are associated with poor diets
and obesity. Therefore, reducing the consumption of sugar drinks through taxes or fees could have
the biggest positive impact on the health and well-being of those low-income populations at greatest
risk for an unhealthy weight.157
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A recent study challenges the assumption that a tax or fee on sugar drinks would be regressive.158
Specifically, this study found that even though lower-income households tended to purchase more
sugar drinks than higher-income households, lower-income households were more sensitive to price
and purchased sugar drinks at a lower average price than middle- or higher-income households.159
As a result of the price sensitivity of low-income households, this study found that the cost of a 40
percent sales tax on sugar drinks was distributed unequally among different socio-economic groups,
with low-income households paying roughly 20 percent of the tax, middle-income households
paying approximately 50 percent of the tax, and the highest-income households paying 30 percent
of the tax.160
This study provides some evidence that low-income consumers would not pay a disproportionate
amount of any tax or fee imposed on sugar drinks as is often assumed. In addition, the exemption
of SNAP benefits from state sales taxes would make sugar drinks taxed with state sales taxes less
expensive when the sugar drinks are purchased with SNAP benefits.
Another possible way a tax on sugar drinks could have an impact on obesity is if revenue generated
through the tax is used to subsidize
healthier foods such as fruits and
vegetables, thereby making them more
affordable to low-income individuals.
This may offset any perceived regressivity
of the tax.
SNAP Benefits
Another policy consideration concerning
sugar drink taxes is to exclude them from
the list of foods eligible for purchase
through the Supplemental Nutrition
Assistance Program (SNAP), formerly
known as the federal Food Stamp
program.161 The SNAP program was
created in 1977 to “safeguard the health
and well being of the Nation’s population
by raising the levels of nutrition among
low-income households.”162 For most
recipients, federal SNAP benefits are
distributed to eligible households through
delegated state agencies in the form of
electronic benefits which can be used like cash at most grocery stores to purchase eligible foods. The
Food and Nutrition Service of the USDA determines which foods are eligible for purchase using
SNAP benefits.163 Sugar drinks are currently included in the list of eligible foods.
Any food bought with SNAP is exempt from sales tax. As a result, any effort to use a state sales tax
on sugar drinks to lower consumption by increasing the price of these beverages would not include
consumers using SNAP benefits to purchase these beverages.
One state, Minnesota, has tried to obtain a waiver from the USDA allowing it to prohibit the
purchase of sugar drinks and other high-calorie, low-nutrient snack foods with SNAP benefits. In
2004, Minnesota requested a waiver of the definition of Food Stamp-eligible foods in order to
prohibit the purchase of candy and soft drinks under the Minnesota program.164 The USDA denied
Minnesota’s request, believing it was preferable to encourage healthier eating through nutrition
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Public Health Law Center
education and health promotion than through policy change.165 More recently, in October 2010,
New York City Mayor Michael Bloomberg requested a waiver from USDA to allow the city to
conduct a two-year demonstration program to evaluate the impact of prohibiting the use of SNAP
benefits to purchase sugar drinks. As of early 2011, the USDA had yet to rule on this request.166
Illinois, Nebraska and Texas also considered legislation in 2011 to remove certain items, including
sugar drinks, from the list of SNAP-eligible foods.167
While federal regulations currently exempt SNAP purchases from state sales taxes, federal
regulations do not exempt SNAP purchases from state excise taxes. Thus, the price of sugar drinks
purchased with SNAP benefits would be impacted by state excise tax initiatives. Accordingly, state
excise taxes on sugar drinks would have a greater impact on those beverages purchased with SNAP
benefits than would a sales tax of the same size.168
Artificially Sweetened Beverages
Artificially-sweetened, non-caloric beverages have not been included in most discussions of
sugar drink taxation, as these beverages do not contain calories and are not generally believed to
Safety of Artificial Sweeteners
While the Food and Drug Administration (“FDA”) has approved the use of artificial
sweeteners in beverages, there is ongoing debate about potential health risks associated with
these sweeteners, especially for children and adolescents. The safety of two commonly used
artificial sweeteners, aspartame and saccharin, continues to be evaluated by the Environmental
Protection Agency (“EPA”). In 2010, the EPA renewed the scrutiny of aspartame as part of an
ongoing analysis of up to 200 chemicals commonly found in many household and food
products. At the same time, the EPA decided to remove saccharin from its list of hazardous
substances on December 14, 2010. Saccharin, an artificial sweetener used in diet soft drinks,
chewing gum and juice, was labeled as a potentially cancer-causing substance in the late 1980s.
The National Toxicology Program and the International Agency for Research on Cancer reevaluated the available scientific information on saccharin and its salts in the late 1990s and
concluded that they are not potential human carcinogens. EPA removed saccharin and its salts
from its lists of hazardous substances because the EPA determined that the scientific basis for
these substances remaining on EPA’s lists no longer applied. Additionally, some studies are
finding a connection between consumption of diet soda and an increased incidence of strokes.
Sources:
Sheila Kaplan, EPA develops neurotoxicants list, new testing, AM. U. SCH. OF COMM. INVESTIGATIVE REPORTING
WORKSHOP, Dec. 22, 2010, http://investigativereportingworkshop.org/investigations/toxic-influence/story/epadevelops-neurotoxicants-list/ (last visited Feb. 18, 2011).
Press Release, U.S. Envtl. Protection Agency, EPA Removes Saccharin from Hazardous
Substances Listing (Dec. 14, 2010), http://yosemite.epa.gov/opa/admpress.nsf/d0cf6618525a9efb85257359003fb69d/ea895a11ea50a56d852577f9005e2690!OpenDocument (last visited Feb. 18,
2011).
Marilynn Marchione, Diet soda tied to stroke risk, but reasons unclear, THE WASHINGTON POST (February 9, 2011),
http://groups.yahoo.com/i?i=vxyidr5lnirhffolmrhfbqzm2xb2cxn5&e=mwmarrow%40aol%2Ecom (last visited Feb.
20, 2011).
Public Health Law Center
17
contribute to the obesity epidemic. Some are concerned that increasing the price of sugar-sweetened
beverages relative to the price of artificially-sweetened ones will lead to increased consumption of
artificially-sweetened beverages, which may prove in the future to be harmful to health in other
ways.169
Notwithstanding the fact that artificial sweeteners are currently classified as safe by the Food
and Drug Administration (see text panel, below), any effort to reduce the consumption of sugar
drinks should be sensitive to the potential for unanticipated health impacts from an increase in
the consumption of artificially-sweetened beverages. Initiatives to encourage the consumption of
water, unsweetened low- and non-fat milk and alternative dairy products (e.g. rice and soy milk),
and unsweetened tea and coffee in place of sugar drinks could reduce the risk that consumers will
respond to taxes and fees on sugar drinks by replacing these beverages with artificially-sweetened
beverages.
Response of the Beverage Industry
When considering the implementation of a tax or fee on sugar drinks, it is imperative to anticipate
the response of the beverage industry to these pricing initiatives. This response can have a
tremendous impact not only on whether or not sugar drink taxes are successfully enacted, but also
on the effectiveness of the taxes in reducing consumption of these beverages and related obesity
rates.
Industry Opposition to Sugar Drink Pricing Policies
Not surprisingly, the beverage industry opposes taxation of sugar drinks. The “industry” is broadly
defined for purposes of this brief as consisting of manufacturers, bottlers and distributors, grocery
and convenience stores, and other retailers and restaurants. Industry opposition to these price
initiatives generally focuses on political, rather than legal, arguments. Industry argues, among other
things, that taxes will have a disproportionate and unfair impact on low-income consumers, and will
cause job losses. Industry also asserts that it is unfair to single out the consumption of sugar drinks
as a cause of the obesity epidemic, and that taxation will not produce meaningful health benefits.170
Legal challenges to taxing sugar drinks do not appear to be a significant obstacle to the success of
these initiatives at this time. Federal and state governments have broad authority to impose taxes
on consumer products. As a result, courts generally defer to the government’s authority to impose
these types of taxes. Therefore, tax initiatives avoid the legal issues seen with other efforts to impact
commercial activity, such as laws impacting commercial speech and advertising.171 Unlike taxes,
regulatory fee initiatives must ensure that there is the legally required connection between the
amount of the fee, the service or item on which the fee is placed, and the activities funded by the
fee. The beverage industry may challenge regulatory fees on sugar drinks by attacking the links
between consumption of these beverages, the negative health or weight outcomes attributed to the
consumption of these beverages, and any government program funded by the fee.
While the policy and legal arguments against imposing taxes or fees on sugar drinks do not appear
to be much of an obstacle, the biggest challenge the beverage industry may pose to the success
of these taxes and fees is through the mobilization of public opposition to these initiatives. The
beverage industry has invested vast resources in large scale media and lobbying campaigns to defeat
proposals for state and municipal taxes on sodas and snack foods. Despite the fact that the wellfunded opposition has been effective in derailing state and local efforts to implement new taxes
on sugar drinks, the 2011 legislative session has seen a resurgence of tax legislation being filed
throughout the country.
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Public Health Law Center
In 2010 industry opposition effectively stopped efforts to pass soda taxes at the local and state level,
including those in Mississippi, New Mexico, New York, Philadelphia and Washington, D.C.172 173
One of the most dramatic illustrations of the power of the corporate interests arrayed against these
taxes was seen in the State of Washington, which in 2010 enacted a temporary excise tax of 2
cents per twelve ounces on soda and other sugar drinks to help address a $2.8 billion state budget
gap.174 In response, the beverage industry mounted the most expensive ballot initiative in the state’s
history, spending more than $16,000,000 on successful media campaigns to overturn the tax.175
Almost all of the funding for the ballot campaign came from the American Beverage Association,
the trade association representing Coca Cola, Pepsi and other beverage manufacturers, bottlers and
distributors.
Beverage Industry Pricing Strategies
The effectiveness of any increase in the price of sugar drinks will also be affected by the competitive
strategies used by beverage manufacturers and food retailers in response to the price increase.176
For example, manufacturers could spread the cost of an excise tax across both sugar-sweetened and
artificially-sweetened products, creating a situation in which the relative price of a sugar-sweetened
beverage as compared to an artificially-sweetened or other beverage remains unchanged.177
How the industry will respond to the imposition of new fees or taxes on sugar drinks is unknown.
However, there are several lessons to be learned from tobacco control efforts. For example, many
tobacco control initiatives involve increased taxes on tobacco products. The tobacco industry has
responded with creative, strategically-targeted price reductions, coupon programs and promotional
prices that have limited the impact of taxes on consumer behavior.178 However, even though the
tobacco industry has tried to counter the effect of tobacco taxes on the use of tobacco products,
the taxation of tobacco products has played a fundamental role in reducing the use of tobacco
products.179
The Way Forward
Despite the success of industry opposition to recent proposals to tax sugar drinks, many states and
municipalities continue to pursue taxation of sugar drinks both to generate revenue in response
to the current fiscal crisis and to curtail the obesity epidemic. Deciding the best pricing policy to
pursue to reduce consumption of sugar drinks and generate revenue is dependent on the taxing
authority of the state or locality considering a pricing policy and on how each of the four key policy
considerations, discussed above, is approached.
As of early 2011, as many as fourteen states were considering taxes on sugar drinks to reduce obesity
rates and generate revenue to help close state and local budget gaps and to fund obesity prevention
or other health programs. These include bills proposed in Mississippi, Connecticut, Hawaii, New
Mexico, New York, Oregon, and Vermont.180 The scope of these bills varies considerably. An
unsuccessful bill proposed in Hawaii would have established a one cent per ounce tax on sugarsweetened beverages, to be paid by distributors or retailers, and would have created a children’s
health promotion fund with the tax revenue. Vermont is also considering a one cent per ounce
excise tax, while Oregon is weighing an excise tax of a half-penny per ounce on the sale of sugarsweetened beverages and concentrates to establish a Health Promotion Fund to support programs
designed to reduce and prevent obesity.181
At the same time, the beverage industry is continuing to invest millions of dollars in aggressive
media campaigns and lobbying efforts at the national, state, and local levels against sugar drink tax
initiatives. The beverage industry launched an intensive lobbying effort in response to discussions
regarding a federal tax on sugar sweetened beverages in 2009. Specifically, the American Beverage
Public Health Law Center
19
Association alone spent over $18.8 million in 2009 and almost $10 million in 2010 lobbying
Congress and federal agencies.182 It appears that opponents to taxes on sugar drinks are mounting
campaigns against specific state initiatives on a state-by-state basis. For example, a media campaign
has been launched against the proposed initiative in New Mexico, as evidenced by a recent website
launched by “No New Mexico Food Taxes” located at: http://www.nonmfoodtaxes.com/.183 A
similar campaign has been launched in Vermont, as seen by the “Stop the Vermont Beverage Tax”
website, located at http://www.novermontbeveragetax.com/.184 Most recently, a new national
television advertising campaign warns ominously about invasive government efforts to control the
public’s eating habits, carefully describing the products involved, not as sugar drinks, but rather as
“food” and “groceries,” notwithstanding their lack of nutritional value.
Several national public health organizations are closely monitoring state and local developments,
and have created numerous resources to assist policy-makers considering these tax initiatives.
Advocates and policy-makers can use these resources to find up-to-date information on federal,
state, and local sugar drink tax initiatives. For example, the Yale Rudd Center for Food Policy and
Obesity, perhaps the leading authority on the topic, has developed a searchable database for current
and past state legislation proposing taxes on sugar drinks (found at http://www.yaleruddcenter.org/
legislation/search.aspx) and a revenue calculator to determine how much revenue each state and
select cities could generate with a sugar drink tax, as well as background papers and other materials
(general information found at http://www.yaleruddcenter.org/). The National Policy and Legal
Analysis Network to Prevent Childhood Obesity (“NPLAN”) has also developed valuable resources,
including model sugar-sweetened beverage tax legislation, a policy brief, and an overview of the
sugar-sweetened beverage state tax legislation considered in 2010 (found at: http://www.phlpnet.
org/). The Center for Science in the Public Interest has created fact sheets on sugar drinks and tax
initiatives and also has a tax calculator to determine potential revenue generation from a sugar drink
tax (found at: http://www.cspinet.org/liquidcandy/).
Other national organizations involved in the sugar drink tax debate include ImpacTeen, an
interdisciplinary collaboration of nationally recognized health experts and part of the Robert Wood
Johnson Foundation’s Bridging the Gap program. ImpacTeen focuses on economic, environmental,
and policy influences on youth substance use, obesity and physical activity, and has developed
several resources regarding sugar drink taxes (found at http://www.impacteen.org/). In addition,
the Public Health Law Center at William Mitchell College of Law provides legal technical assistance
to health leaders, officials, and advocates advancing public health initiatives, including obesity
prevention initiatives (found at http://publichealthlawcenter.org/).
Conclusion
The use of pricing policies on sugar drinks holds promise to reduce consumption of these beverages,
improve weight outcomes, and generate revenue for obesity prevention and public health initiatives.
While reducing the consumption of these beverages will not single-handedly halt the obesity
epidemic in the United States, growing evidence supports the use of pricing policies on sugar drinks
as one of the most significant components of a comprehensive effort to reduce the prevalence of
obesity and unhealthy weights. While some obstacles exist to the implementation of these pricing
policies, much can be learned from other public health initiatives using taxes or fees to impact
consumption patterns, including tobacco control initiatives.
Dedicating revenue generated from sugar drink pricing initiatives to obesity prevention initiatives,
including the funding of incentives to promote the consumption of healthier foods, will ensure
the greatest impact of these initiatives on weight outcomes. It is important to acknowledge that
dedicating this revenue to public health initiatives may be politically difficult in the current fiscal
20
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climate. At the same time, however, the need to generate funds to bridge state and local budget gaps
may actually provide additional political support for these taxes and create a climate in which there
is greater awareness of the issues associated with the increased consumption of sugar drinks and
related health and weight outcomes. Recognizing the potential need to compromise on the use of
revenue generated from the taxation of sugar drinks, public health advocates should focus attention
on opportunities to use revenue from sugar drink taxes to support the consumption of healthy foods
and public health initiatives supporting healthy weight.
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1
22
Endnotes
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